C-3POh No! Broadcasters Agitate for Better Ratings Currency

While some prominent buyers have never been enthusiastic about the adoption of C3—as far back as October 2007, after the first C3 upfront had wrapped, Horizon Media founder and CEO Bill Koenigsberg charged that the new metric only served to artificially tighten the national TV market by reducing the pool of available GRPs—early advocates had suggested that the blended data stream was a compromise. Eventually, buyers said, a more granular, fine-tuned system would be adopted.

For the sake of argument, suppose that Nielsen isn’t able to radically streamline its reporting processes, at least not in the near term—would we as a result see the broadcasters take a much longer view in terms of deciding on renewals and/or cancelations? If so, what impact would that have on programming budgets and studio operations?

Despite the fact that broadcasters really seem to believe that a shift will prove worthwhile in the long run—NBC Broadcasting chairman Ted Harbert began beating the C7 drum at the Peacock’s May upfront presentation—clearly, there are some procedural issues to resolve before diving into a new currency.

Troubled by historically weak prime-time deliveries, broadcast executives have begun making a case for adopting a more expansive ratings currency, one that would wring more favorable results from time-shifting viewers.

Speaking to analysts during last week’s third-quarter earnings call, CBS Corp. CEO Les Moonves noted that the Tiffany Network’s fall ratings improved by 30 percent when seven days of DVR viewing was blended in with the live-plus-same-day data.

“As we move forward, we will make it a priority to get paid for all of the viewing that is going on across our shows, including DVR viewing beyond C3,” Moonves said, adding that the bonus credits “represent a significant opportunity for us that is still in the very early stages.”

A bit later in the call, Moonves allowed that while the majority of time-shifted viewing occurs within the first three days of the original air date, there was extra value to be squeezed out of the additional four days. He also said he thought a shift will be implemented “within a relatively short time.”

Iger called the uptick in DVR penetration “the story of the year,” adding that the increase in delayed viewing “clearly has shifted the rating in the direction of C3 and, hopefully, C7.”

Of course, Iger misspoke a bit when he suggested that C3 was the emerging currency. The combination of average commercial minutes plus three days of time-shifted viewing was adopted by the industry in 2007.

What lies at the heart of the sudden embrace of a hypothetical metric is the flaming zeppelin crash that is the 2012-13 broadcast season. Through the first seven weeks of the network schedule, only NBC has improved in overall reach and with adults 18-49, averaging 8.79 million total prime-time viewers (up 20 percent versus the same time a year ago) and a 3.2 in the demo (up 23 percent).

The other broadcasters, meanwhile, are taking it on the chin. Of the Big Four, Fox is experiencing the biggest ratings shortfall, dropping 29 percent in the demo to a last place 2.5 rating. CBS is down 18 percent to a 2.8, while ABC has slipped 7 percent with a 2.6 rating.

(CBS guarantees against deliveries of adults 25-54, and while a year-over-year comparison wasn’t immediately available, its losses are likely in line with its total viewership numbers. Per Nielsen, CBS thus far is averaging an industry-leading 11.7 million viewers, down 10 percent from just south of 13 million a year ago.)

While a slate of lackluster new series and a more-ravenous-than-usual cohort of cable competition has enfeebled broadcast’s live-plus-same-day ratings, a full week’s course of time-shifted deliveries demonstrably puts the numbers in a sunnier light. For example, in the final week of October, ABC’s already powerful Modern Family saw its 18-49 deliveries jump 49 percent upon application of the live-plus-7 data, improving from a 4.9 in the demo to a 7.3.

But here’s the thing: Those extra eyeballs are all but meaningless to advertisers, as they pay only for C3 deliveries. And when the ratings are filtered through the currency, Modern Family, like so many other shows, is flat. In other words, all the extra viewership that is facilitated by the DVR does not result in a concomitant gain in people who’ve actually had the patience to sit through the commercial load.

As anyone in the 52.7 million households with a DVR knows, the fast-forward button is the device’s killer app. The networks could add 14 days of playback to the mix, and it still seems unlikely that it would move the needle on actionable commercial ratings.

Or, as BTIG Research analyst Rich Greenfield wrote today in a note to investors, “Watching live television is no longer top of mind and watching commercials is laughed at. Consumers have essentially been trained to avoid TV commercials.”

Greenfield went on to tear a hole in broadcasters’ efforts to effect a shift to a C7 currency, saying that the data stream is fundamentally irrelevant to advertisers. “You can try boosting viewership via C7 or even C14, but the ads are simply not being watched,” Greenfield said. “Trying to charge advertisers for ratings points that are not generating ad views is a nonstarter.”

Because viewers understand that they now live in an on-demand universe, Greenfield said that the only solution is for programmers to find a way to couple “a dramatically larger percentage” of VOD content with “targeted advertising and a lower ad load.” He added that consumers are unlikely to use the relatively clumsy DVR if they can access what they want when they want it, “especially if the ad load is lighter and the ads relevant.”

The same morning, RBC Capital Markets analyst David Bank indicated that he was a lot more optimistic about the implementation of C7. “It’s less of a pipe dream than one might think,” Bank said, adding that the extra four days of deliveries were likely to improve on the standard C3 results by as much as 5 percent.

While Bank said that lobbying efforts to update the currency probably won’t pick up sufficient momentum to have any material impact on the 2013-14 upfront, a switch “could happen sooner than later.”

Essentially, the broadcasters are gambling that the gains that come with the extra four days of playback will more than offset the resulting power shift in favor of the media buyers. “Buyers want a modest discount in pricing that probably sets dollar volumes back in year one, with the expectation that the additional four days of viewing will grow more quickly than the declines in C3 over the next few years, bringing long-term volume growth to the sellers in exchange for the near-term pain,” Bank said.

Also look for a two-tier system to crop up, wherein inventory for time-sensitive clients (movie studios, retailers) would be roped off from the long-tail categories like CPG and financial services.

While some prominent buyers have never been enthusiastic about the adoption of C3—as far back as October 2007, after the first C3 upfront had wrapped, Horizon Media founder and CEO Bill Koenigsberg charged that the new metric only served to artificially tighten the national TV market by reducing the pool of available GRPs—early advocates had suggested that the blended data stream was a compromise. Eventually, buyers said, a more granular, fine-tuned system would be adopted.

For the sake of argument, suppose that Nielsen isn’t able to radically streamline its reporting processes, at least not in the near term—would we as a result see the broadcasters take a much longer view in terms of deciding on renewals and/or cancelations? If so, what impact would that have on programming budgets and studio operations?

Despite the fact that broadcasters really seem to believe that a shift will prove worthwhile in the long run—NBC Broadcasting chairman Ted Harbert began beating the C7 drum at the Peacock’s May upfront presentation—clearly, there are some procedural issues to resolve before diving into a new currency.